MFA EUROPEAN DIRECTOR NOT OPTIMISTIC ON EU BUDGET

C O N F I D E N T I A L SECTION 01 OF 03 PARIS 007787

SIPDIS

DEPT FOR E, EB, EUR/ERA, EUR/WE

E.O. 12958: DECL: 12/31/2014
TAGS: PREL ETRD FR ECON PGOV EUN
SUBJECT: MFA EUROPEAN DIRECTOR NOT OPTIMISTIC ON EU BUDGET
DEAL


Classified By: Pol/MC Josiah Rosenblatt for reasons 1.4 (B & D).


1. (C) Summary: MFA EU Affairs A/S-equivalent Briatta told
us November 15 that he was not optimistic the EU would reach
a budget deal by year's end, in part because of Blair's
weakened domestic standing, and notwithstanding the UK's
fears of increasing isolation within the EU and growing
unhappiness among its natural allies, the new member states.
If no deal is reached, Briatta feared that the UK would
become even more intractable once its EU presidency has
ended. He insisted that the proposal brokered by Luxembourg
PM Juncker in June was acceptable in substance to the UK and
that French willingness to engage in a bottom-up review of EU
financing in preparation for the next seven-year budget cycle
beginning 2014 was an acceptable quid pro quo; but he
believed the UK was attempting to leverage French isolation
on the Doha round into additional concessions, which he said
would not work. Briatta predicted that EU doldrums would
continue for some time given member states' internal and
economic problems, including France's need to make heavy
investments in the wake of the current civil disorder.
However, he did not believe Romanian and Bulgarian accession
would be delayed, notwithstanding Commission warnings. On
Turkish accession, he said passions had died down for the
time being, but said it would be up to Turkey, when and if
negotiations were ever concluded, to convince the French
electorate, in particular France's Armenian diaspora, that it
should join the EU. End summary.


2. (C) Pol/MC and Deputy met November 15 with MFA
AS-equivalent for EU affairs Gilles Briatta to discuss
prospects for a budget deal in time for the December 15-16
European Council (summit) meeting in Brussels. Briatta was
unaccompanied. Discussions also touched on the state of the
EU, accession dates for Romania and Bulgaria, and
Turkey-Cyprus in the context of Turkey's beginning accession
negotiations.

EU budget and the UK rebate
--------------


3. (C) On prospects for an EU budget deal by the end of the
year, Briatta said he was not optimistic. The weakening of
PM Blair's domestic standing since Hampton Court, in his
view, had made an already difficult situation worse. Saying
that the issue boiled down to who would pay for EU
enlargement, he termed UK intransigence untenable, including
among the new member states who were otherwise the UK's
natural allies. Briatta also claimed that the UK was
increasingly isolated in its stance on the budget issue,
since those member states initially opposed to the Juncker
compromise of June (the UK, Netherlands, Sweden, Spain, and
Finland) were no longer real obstacles.


4. (C) Asked where French compromises on the Common
Agricultural Program (CAP) fit into the mix, Briatta was
emphatic that France had already offered the UK a face-saving
deal: France could agree to a bottom-up review of EU
financing and "put everything on the table," including the
CAP, in time for the next seven-year budget cycle beginning
2014, if the UK would agree to phase out its rebate during
the current budget cycle of 2007-2013. Briatta said France
agreed that spending needed to have a more logical basis and
be less automatic. He argued that the CAP was of diminishing
financial interest for France, but that it nonetheless needed
a few years to prepare its farmers for the changeover.
Moreover, it would take a number of years to conduct such a
bottom-up review in any case. Briatta also claimed that
paying for enlargement would ultimately prove cheaper than
maintaining the CAP and the rebate.


5. (C) To POL/MC's question as to why the UK had not reached
the same conclusions, Briatta claimed that Blair had
privately admitted at one point that he would have accepted
the Juncker compromise had he understood better.
Unfortunately, he said, the UK's position would only harden
if no deal were reached in December, since it would no longer
be constrained by the consensus-building burden of the EU
presidency. Gordon Brown's waiting in the wings to succeed
Blair also did not bode well. He surmised that the UK
strategy now, built on the assumption that France could not
wage war on two fronts simultaneously, consisted of trying to
leverage mounting international pressure on France on WTO
Doha round negotiations to force French concessions on the
budget. This would not work, however, Briatta contended.
France believed Mandelson was more cognizant of French red
lines, and France would not budge on the CAP.


6. (C) Briatta contended that the current economic
difficulties of the large EU member states, in particular
Germany, were also a factor in the UK's isolation; no one was
in the mood to help out the UK. France's response to the
civil violence in its suburbs would mean heavy investments,
money that France was no longer prepared to hand over to
Brussels. The new German government, he said, would be even
more committed to not going above one percent funding
threshold. He noted ironically that failure to reach a
budget deal would not affect CAP payments, which were
obligatory, while other funding would suffer. Indeed,
failure to reach a budget deal could potentially lead to an
overall increase in EU spending. In the absence of a
seven-year budget, he continued, the European Parliament
would have the last word on annual budget decisions, which
risked an "explosion" of the EU's budget. This explained, he
said, why the six net contributors continued to put down
markers on limiting the budget.

State of the Union
--------------


7. (C) Pol/MC asked how strong a blow a budget impasse would
represent for the EU more generally, given the failed
referenda on the European constitution and the failed summit
of June. Briatta responded that EU machinery would continue
to function as always, adding that France was not interested
now in a renegotiation of the EU constitutional treaty. He
saw a "pause" as useful and even necessary following the
"quantum leap" of the last round of enlargement, although it
was important for new members that the interregnum not last
too long. His main concern was that Poland would become a
problem, given its pressing needs for reforms and
infrastructure. Asked about the crisis of confidence in the
EU, Briatta responded that he saw this essentially as a
member state problem. Europe could not be a substitute for
member states' confidence in themselves. The problem was
that such confidence was currently lacking.


8. (C) Asked about relations between "old" and "new" Europe,
Briatta said France had some problems explaining its
restrictions on free circulation of labor, especially in
light of UK willingness to accept new member state workers.
New member states, he said, were more concerned in principle
about "second-class status" than immediate economic benefits.
But the UK position on the budget had led many new member
states to realize how complicated Europe was; for example, a
recent Spanish decision to open its labor market to new
members in 2006 was motivated to a large degree by the desire
to offset illegal (Muslim) immigration with European Catholic
migrants. Briatta conceded readily that France needed to do
more to convince its population of the advantages of more
contact with the citizens of new member states, including an
opening of France's labor market. Most French citizens did
not realize that France was the largest investor in Poland,
for example. Interior Minister Sarkozy, he said, was the
only politician who recognized the need to move forward on
this front; President Chirac, he said, has candidly explained
to France's partners that free labor movement was politically
impossible for the time being.

Romania and Bulgaria
--------------


9. (C) Briatta termed "bizarre" the Commission report on
Bulgaria and Romania; superficially it appeared to be a
warning to the two countries that their accessions might be
delayed, but the details suggested that accession would
nevertheless occur on schedule for January 2007. Indeed, he
believed that accession would occur on schedule. He said
that France favored rapid accession, especially for Romania
given its large markets and French interest in investing in
Romania, just as it had in Poland. (The dimensions of
Franco-Polish trade and investment -- France is the top
foreign investor in Poland -- is not widely recognized in
France or Poland.) This was a strategic interest for France,
which was well positioned especially in the areas of public
works and transportation. The only problem was the
association in many minds of Romanians with Roma and crime.
Bulgaria, on the other hand, was too small and unfamiliar to
be viewed as problematic, and there were no lobbies either
for or against Bulgaria in France.

Turkey-Cyprus
--------------


10. (C) Briatta said that interest in Turkey had waned since
the opening of accession negotiations. He defended France's
decision to make an issue out of Turkish non-recognition of
Cyprus prior to the opening of accession talks, arguing that
the GOF had demonstrated to the parliament and the French
public (in the wake of France's rejection of the EU
constitutional treaty) that France could make a difference
when it chose to do so. He personally made a point of trying
to impress on Turks that the key to winning a positive French
vote in an eventual referendum (Note: now required by the
French constitution) on Turkish membership would be to
recognize the Armenian genocide; this was an issue for the
Armenian diaspora in France, he said, not for Armenia. It
was also be important for NGOs interested in torture and
women's issues to impress upon EU publics that Turkish EU
membership was the best way to ensure Turkish respect for
human rights. This was not a job for the GOF, he insisted;
too much GOF intervention would only lead to another
referendum defeat.


11. (C) Despite France's growing economic interests in
Turkey, and its long history with Turkey, Briatta lamented
that mutual understanding between French and Turkish leaders
remained limited. (Note: Without saying so, he implied that
things had changed with the election of Erdogan and his
party's less secular vision of government.) Briatta cited
the example of a Turkish AKP parliamentarian (with whom he
had recently met) who did not realize that France was a
secular state. He said the Turks had also viewed Chirac's
call for a "cultural revolution" (in the context of reforms
needed for EU membership) through the historical optic of
West European imperialism. Briatta dismissed an eventual
role for French companies in promoting Turkish membership
with the French electorate, citing deep-seated, widespread
French suspicion of capitalism.


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Hofmann